Advocacy and a Good Story Lead to Social Enterprise Success with the IRS

Visitors to downtown Boulder have likely seen Ramble on Pearl, a retail boutique which offers customers access to premium quality active lifestyle clothing and accessories at below retail prices. For most shoppers, it’s one of several retail boutiques along the popular Pearl Street Mall. To the founders and benefactors of Boulder Treasures, the nonprofit organization which owns and operates the store, it’s a learning lab where adults with developmental disabilities can learn the hard and soft skills of employment they need to gain independent employment within the community. And for these special apprentices, it’s a place where they can experience a sense of pride and achievement, forever changing the many ways they engage with world.

A novel idea, definitely. However what makes operating a commercial establishment, which competes with other commercial establishments, eligible for tax-exempt charitable status? Good question.

Boulder Treasures came to Leaffer Law Group for answers.

As a social enterprise, Boulder Treasures strives to be self-sustaining—i.e., to generate enough retail sales to cover both the operation of the store and the apprenticeship program, minimizing its reliance on charitable donations. In a world where funders and other stakeholders are increasingly expecting charities to use self-sustaining business models to support their missions, there’s a real temptation to tell one’s story using a “commercial” lens. That can spell problems when applying for 501(c)(3) status. When applying, it’s essential the IRS understand, first and foremost, the enterprise is a charitable endeavor, and the business model is simply the vehicle by which that endeavor is carried out.

“Boulder Treasures’ challenge represents an important part of the work we do, and our philosophy in how we approach that work,” says Karen Leaffer, managing partner at Leaffer Law Group. “When we tell our client’s story to the IRS, it’s important to remember our audience and what they are looking for—what their hot buttons are likely to be. With Boulder Treasures, our job was to make certain there was no confusion with the IRS about what the retail store represented—a means to an end. And since they were in a rush to get their 501(c)(3) status approved, it was essential we proactively address any questions we anticipated the IRS might raise from the initial application, to avoid the inevitable delays that could result from a series of back-and-forth questions and answers.”

In applying for coveted tax-exempt status, some preparers take a “bare minimum” approach—they say as little as possible and let the IRS come back with questions. Leaffer Law Group views the application as more than an application—it’s an opportunity to champion and advocate for a client. The IRS, who has some discretion in how the application will advance, will form its first impression of the organization from the application, so Leaffer Law Group wants to ensure it’s a favorable one. Karen added, “We want to tell a good story–one without holes or inconsistencies. We don’t want to leave the IRS with fundamental questions about what the organization plans to do. We want a clean ruling on all it plans to do. And we want the agent reviewing our application to say, ‘I understand these guys and love what they do—I’m going to recommend a favorable determination right away.’”

In this case, Leaffer Law Group worked to make Boulder Treasures’ unique story unequivocally clear. The application needed to clearly demonstrate how Ramble on Pearl is a teaching vehicle and a pathway to achieving their charitable mission.

“The team at Leaffer Law speaks the IRS language,” said Andy Minden, Boulder Treasures Executive Director. “We needed a translator to be able to clearly tell our story so we could launch our store as expeditiously as possible.”

This situation was further complicated because it came at a time when IRS delays had resulted in a significant backlog in nonprofits getting their tax-exempt status. Boulder Treasures wanted to do all they could to ensure their process went smoothly.

In the meantime, Leaffer Law helped Boulder Treasures get started with a fiscal sponsorship model which allowed them to get up and running prior to achieving tax-exempt status.

“Leaffer Law listened to us, were patient with us, and worked very collaboratively with us. We went from being anxious about the process, to being pleased.”

With a touch of fate, Boulder Treasures received their 501(c)(3) status on the same day they opened their retail store on Boulder’s Pearl Street Mall.

Mission Accomplished: Today, Boulder Treasures provides a valuable service for socially-responsible shoppers who chose to support them by shopping at their store. As a result, they are achieving their mission of creating pathways to meaningful employment for people with developmental disabilities with a hybrid business model.

Leaffer Law accomplishes its mission when they can help a nonprofit accomplish theirs.

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